Financial highlights

Revenue

Q2 2019:

Revenue was flat, and up 1% in constant currencies. Price/mix was up 5% overall, mainly driven by pricing initiatives. Volumes were 6% lower due to our value over volume strategy and lower volumes in China. Excluding China, volumes were 4% lower.

• Decorative Paints revenue was flat, and up 2% in constant currencies, with positive price/mix up 4%. Pricing initiatives and acquisitions more than offset lower volumes
• Performance Coatings revenue was 1% lower and flat in constant currencies. Price/mix was 7% positive, driven by pricing initiatives, while volumes were lower
• Other revenue includes royalty and service revenue related to continued services for the former Specialty Chemicals business

Revenue development Q2 2019

Half-year 2019:

Revenue was flat, and up 1% in constant currencies. Price/mix was up 5% overall, mainly driven by pricing initiatives. Volumes were 6% lower due to our focus on value over volume. Excluding China, volumes were 3% lower.

• Decorative Paints revenue was flat, and up 2% in constant currencies, with positive price/mix of 5%. Pricing initiatives and acquisitions more than offset lower volumes
• Performance Coatings revenue was flat, and 1% lower in constant currencies. Price/mix was 6% positive, driven by pricing initiatives, while volumes were lower
• Other revenue includes royalty and service revenue related to continued services for the former Specialty Chemicals business

Revenue development half-year 2019

Raw material price development

Raw material inflation continued in Q2 2019, although at a lower rate than in 2018, adding €33 million of costs for the quarter. Pricing initiatives and cost-saving programs continue being implemented to deal with these higher raw material costs.

Acquisitions

The impact of acquisitions on revenue was 2% for Decorative Paints and 1% for AkzoNobel overall. The acquisition of Mapaero to further strengthen our global position in the steadily growing aerospace coatings industry was announced on July 18, 2019.

Adjusted operating income

Q2 2019:

Adjusted operating income was up at €305 million (2018: €225 million), driven by pricing initiatives and cost-saving programs. Continuous improvement successfully offset inflation and cost savings resulting from the announced transformation delivered €43 million in the quarter. We are on track to deliver €200 million of savings planned for 2020. ROS was up 3.2% at 12.4% (2018: 9.2%).

• Decorative Paints continued to improve. Price/mix effects and cost savings more than compensated for increased raw material costs and lower volumes. ROS was up at 13.5% (2018: 12.2%)
• Performance Coatings improved as a result of pricing initiatives and cost savings, more than offsetting higher raw material costs and lower volumes. ROS was up at 13.6% (2018: 11.8%)
• Other activities/eliminations improved €42 million to €28 million, mainly due to lower costs, and a one-off gain on a disposal (2018: €70 million, which included €20 million of one-off costs)

Half-year 2019:

Adjusted operating income was up at €468 million (2018: €374 million), driven by pricing initiatives and cost-saving programs. ROS was up 2.0% at 10.1% (2018: 8.1%).

• Decorative Paints continued to improve. Price/mix effects and cost savings more than offset continued raw material inflation and lower volumes. ROS was up at 10.6% (2018: 9.7%)
• Performance Coatings improved as a result of pricing initiatives and cost savings, more than offsetting higher raw material costs and lower volumes. ROS was up at 12.0% (2018: 10.9%)
• Other activities/eliminations improved €48 million to €63 million (2018: €111 million)

Operating income

Q2 2019:

Operating income increased to €308 million (2018: €192 million) and included positive identified items of €3 million, mainly relating to transformation costs and a gain on disposal of €57 million (2018: €33 million negative, mainly related to transformation costs).

Half-year 2019:

Operating income was up 40% at €421 million, and includes €47 million negative impact from identified items, mainly related to transformation costs and non-cash impairments partly offset by a gain on disposal of €57 million following asset network optimization (2018: €300 million, including €74 million negative impact from identified items).

Net financing income/(expenses)

Net financing expenses increased by €22 million, mainly due to an interest benefit on a tax settlement in 2018.

Income tax

The effective tax rate in the first half-year was 25.0% (2018: 15.3%). The 2018 income tax expenses were positively impacted by a re-recognition of deferred tax assets and a tax settlement.

Profit from discontinued operations

Profit from discontinued operations was €16 million and includes the final purchase price settlement of the sale of the Specialty Chemicals business, which was divested per October 1, 2018. In 2018, the results of the Specialty Chemicals business were included as profit from discontinued operations.

Net income

Net income attributable to shareholders was €296 million (2018: €524 million), of which €16 million was attributable to discontinued operations. In 2018, €226 million was attributable to continuing operations and €298 million to discontinued operations related to the divested Specialty Chemicals business. Adjusted earnings per share from continuing operations increased to €1.40 (2018: €0.87).

Adoption IFRS 16 “Leases”

IFRS 16 “Leases” was adopted per January 1, 2019, applying the modified retrospective method. The 2018 comparative figures have not been restated. As a result, right-of-use assets and lease liabilities have been recognized on the balance sheet. In the P&L, the operating lease expenses in operating income have been replaced by depreciation of the right-of-use assets (operating income) and interest on the lease liability (net financing expenses). In the cash flow statement, the payments for operating leases are now recognized in the net cash from financing activities instead of net cash from operating activities. Further details are provided in Quarterly statistics.